The automotive industry will start 2021 on rough terrain as the coronavirus pandemic continues to be the dominant factor impacting businesses.
in ICIS, by Morgan Condon, 29-12-2021
This demonstrates the scale of damage Covid-19 has caused to the sector; at the dawn of 2020 – before the novel coronavirus had been identified – the industry had anticipated stable growth to follow from relative weakness in 2019.
European vehicle manufacturers have suffered a more severe impact than most industries in 2020.
The chemicals sector has unequivocally suffered in response to the weakness in a key downstream industry but has remained more resilient.
Depending on the material and the application, chemicals and plastics used in automotive production could continue to hold steady on the back of continued demand.
“To see what real growth looks like, we will need to look at 2021 vs 2019. Most places in the world should stay weaker in 2021, with China being the notable exception,” said ICIS market demand lead analyst Rhian O’Connor.
China felt the early tremors in response to the coronavirus, but the Chinese economy was the only one to make a V-shaped recovery.
Automotive demand increased from the second quarter of 2020 and is expected to continue in 2021.
According to analysis from Oxford Economics, vehicle production in China is expected to grow by more than 10% in 2021, compared with pre-pandemic, 2019 levels.
As the Joe Biden Administration is set to enter the White House in 2021, relations between the US and the rest of the world are set to change, potentially impacting trade.
While some tariffs between the US and China will be rolled back, it is unlikely that US polymers will flood the Chinese import market as trade tensions will not fully dissipate.
The US and European automotive sectors are expected to remain weak in 2021, with Oxford Economics forecasting a more than 10% decline in vehicle production in the EU and UK in 2021, compared to 2019 levels.
In particular, high density polyethylene (HDPE) could be vulnerable as it is widely used to produce blow-moulded fuel tanks, accounting for around 13% of overall European demand for the polymer.
The trade agreement between the EU and UK, reached at the eleventh hour on 24 December, could have far reaching consequences for trade between the two parties, not least for chemicals for which regulatory regime is not yet clear.
The deal, however, dissipates immediate uncertainties that had been haunting the automotive industry – and chemicals – since the UK voted to leave the EU in 2016; tariffs on goods were finally avoided.
The pandemic will continue to impact supply-side dynamics, as safety measures put in place could limit production.
Similarly, logistics could be impeded by fresh spikes in coronavirus, which could also weigh down on productivity.
The biggest driver of supply is likely to be to what extent demand recovers in 2021; employment in the sector could continue falling if buying sentiment among consumers remains weak.
Divergent demand trends are also set to pull the market in different directions in 2021.
As many economies continue to struggle and unemployment remains high, then households are unlikely to make larger-scale purchases, leaving the industry vulnerable.
In China, an uptick in demand has been driven by the pandemic. People are more hesitant to use public transport due to the risk of contracting the virus, which has supported further auto sales.
While many buyers in the rest of the world may not be able to afford a new vehicle, this could support an increase in repairs, and support upstream production.
One aspect of the automotive industry which tracked more inelastic demand was for electric vehicles (EVs).
The EU is using the breaking away from traditional norms to implement a more stringent green policy, which could result in further infrastructure for greener mobility.
As light-weighting is necessary to make EVs more fuel efficient, then this will provide solid, continuous demand for engineering plastics used in auto production.
With the public support for more sustainable mobility coupled with legislative momentum to reduce greenhouse gas (GHG) emissions, then chemicals used in vehicle manufacturing are likely to remain growing segments beyond 2021.